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How To Use Capital Gain Account Scheme (CGAS) To Save Tax In India?

Capital Gain Account Scheme (CGAS) is a special bank account scheme where
individuals and HUFs can deposit there long term capital gain (LTCG) temporarily
to save tax. Income tax act 1961 says, tax payer are exempt from paying tax on
long term capital gain if sale proceeds are utilized for specific purpose within
specified time. Like in case of sale of house property, the amount of profit arise is
exempted from tax if reinvested either for the purchase of another residential
property within 2 years or for the construction of a residential property within 3
years from the date of sale of property.
In true terms, this scheme works for those individuals who have earned capital
gain and want to reinvest the sale proceeds for the purchase of another
residential property or for the construction of a residential property and amount
of sale proceeds is not invested before the due date of filing income tax return.
In that case tax payer can deposit money under Capital Gain Account Scheme
with a nationalized bank either in lump sum or in installments and attach the
proof of deposit with the return to avail the exemption and can utilize the
amount for the specific purpose within extended period.
Lets take an example to make you understand this better :- Mr. Rohit sell a
property in April 2010 and earned capital gain of Rs 50 lakh. To save tax, he has
to invest the amount of capital gain either for the purchase of a new residential
property by April 2012 (within 2 years) or for the construction of a residential
property by April 2013 (within 3 years). If in case he was unable to reinvest the
money before the date of filing income tax return i.e July 31st, 2011 he either
have to pay tax on capital gain i.e 20% of Rs 50 lakhs = 10 lakhs or he can open
and deposit the money into Capital gain account scheme with any nationalized
bank to save tax. But if he will not purchase a new residential property by April
2012, he will have to pay tax on the long term capital gain + interest earned
from CGAS in the financial year 2013-2014.
Different sub section applicable for the exemption under Section 54 of income
tax act 1961

Sale of a residential house (Sec 54)

Sale of agricultural land (Sec 54B)

Compulsory acquisition of land & building (Sec 54D)

Sale of any long term capital asset (Sec 54F)

Transfer of assets in case of shifting of industrial undertaking. (Sec 54G)

Types Of Capital Gain Scheme (CGS) Accounts


There are two types of Capital Gain Scheme (CGS) accounts.
Account A It is more like a savings bank account where account holder can
withdraw money time to time and the interest paid on this account is at par with
normal saving bank account rate. The amount withdrawn from this account
should be utilized within 60 days or reinvested back in the saving account else
will be taxable.

Account B It
for fixed time
reinvested) or
generally fixed
slightly lower.

is like more like a term deposit where amount can be deposited


period. This account offers two optionscumulative (interest
non-cumulative (quarterly withdrawal). The interest rate is
by the bank and is either on a par with other term deposits or

Silent Feature Of Capital Gain Account Scheme

This scheme can only benefit to people with long term capital gain (LTCG).
Only Individuals and Hindu Undivided Familys can avail exemption under
this scheme on LTCG.
Tax payer should deposit sale proceeds before the due date of
filing income tax return for the relevant previous year.
Tax payer should open two separate accounts for two different asset
classes which qualify under different sections.
Amount withdrawn from CGS account should either be utilized within 60
days or should be redeposit in saving account i.e Account A.
Proof of deposit needs to be submitted along while filing income tax return
to avail exemption..
Interest earned on this account is taxable in the hands of account holder.
No loan facility is available on this account.
Account transfer from one bank branch to another is permissible.
Account holder can switch from Account A to Account B or vice versa of
the same bank if opened under the same provision.
Capital gains made in one asset class cannot be invested in another asset
class for claiming tax benefit.
In case of total capital gain is not utilized within stipulated time, taxpayer
can avail proportionate deduction.
In case of pre-mature transfer from Account B to Account A, the normal
penalty will be applicable.
Withdrawals can be made only from Account A by submitting a declaration
where the purpose for the amount withdrawal should be mentioned
clearly.
Withdrawal for more than Rs 25000 is paid only by way of crossed demand
draft.
In Capital Gains Accounts Scheme, the depositor can deposit the money in
both the accounts i.e Account A and Account B.
In case of Account A, the bank shall issue a bank passbook to the
depositor.
In case of Account B, the bank shall issue a deposit receipt to the
depositor.

What Are The Different Type Of Forms Used To Operate Capital Gain
Account Scheme?
Form C :- Whenever account holder needs to withdraw money for the purpose of
making payment for the purchase or construction of residential property, he can
apply using form C.
Form D :- After initial or first withdrawal, tax payer needs to apply for
withdrawal using form D in duplicate.

Form E :- The scheme further provides that the amount which has been
withdrawn should be utilized for purchase or construction of the property within
60 days from the date of such withdrawal. The facility of nomination is also
available to the deposit holder by filling up Form No E.
Form G :- Account holder can apply for the closure of capital gain account
scheme using Form G.
Form H :- Nominee or legal heir need to take approval from the assessing officer
in Form H who has jurisdiction over deceased depositor and submit to bank.
Where To Open A Capital Gain Account Scheme Saving/Fixed?
The account can be opened with any branch (excepting a rural branch) of the 28
designated
nationalized banks including :

State Bank of India


Oriental Bank of Commerce
UCO Bank
Union Bank of India (UBI),
Punjab National Bank,
Vijaya Bank
State Bank of Bikaner & Jaipur
State Bank of Hyderabad
State Bank of Indore
State Bank of Mysore
State Bank of Patiala
State Bank of Saurashtra
State Bank of Travancore
Central Bank of India
Bank of India
Bank of Baroda
Canara Bank
United Bank of India
Dena Bank
Syndicate Bank
Allahabad Bank
Indian Bank
Bank of Maharashtra
Indian Overseas Bank
Andhra Bank
Corporation Bank
New Bank of India
Punjab & Sind Bank.

Capital Gain Tax on Sale of Property

Selling a house is a gargantuan and tedious task in itself, add to that the fact that you will be
charged a tax on your capital gains and you have the perfect recipe for a headache. If youre
selling a property in India, the profits you earn are called Capital Gains.
Whether these Capital Gains will be taxed is entirely up to the person receiving the benefits of a
profit from sale, as he can choose to invest it in the given time frame and save himself from
taxation on Capital Gains.
You will be taxed on the profit (capital gains) you make which is the amount that you get after
subtracting cost of acquiring (and repairing / improving) the asset from the sale value. These
capital gains can be classified as short term or long term capital gains.
If you sell your land / house / property within 36 months (3 years) of acquiring it, its considered to
be a short term capital gain. If you sell it after 36 months (3 years) its considered to be a long
term capital gain. This differentiation between short and long term capital gains is important
because both of these are treated differently in terms of taxation. The tax rates and tax benefits
which are applicable on the reinvestment of these two types of gains vary.
Long term Capital Gains on sale of real estate are taxed at 20%, plus a cess of 3%, if the sale
fulfils certain conditions.
If you sell a property that was gifted to you, or that you have inherited, you will still be liable to pay
capital gains tax on it. The cost of purchase here is calculated on the basis of the cost to the
previous owner, indexed to the year of purchase.

How to Save on Capital Gains Tax while Selling your


Property?
Long term capital gains are exempted from taxation (under Section 54 of the Income Tax Act,
1961) for individuals and Hindu Undivided Families on the sale of a house property if:

The capital gains are used to purchase or construct another house.


The new house is purchased one year before or two years after the sale of the old house.
The new house is constructed within 3 years after the sale of the old house.
Only one additional house property is purchased / constructed.
The property being bought / developed is within Indias national borders.
You dont sell the new house for 3 years after taking possession of it.
If the cost of the new property is lesser than the sale amount, the exemption then only
applies proportionately. The remaining money can be re-invested under Section 54EC in under
6 months.

Capital Gains Account Scheme:


If you cant construct a house immediately after benefitting from a capital gain (but plan to do so
sometime in the near future), then you can put the profit amount in any public sector bank under
the Capital Gains Account Scheme (CGAS). If you do this, you have 3 years in which to get your
ducks in a row and get your property construction started. If not, the capital gain amount will be
taxed as a long term capital gain (at 20% plus a 3% cess).

Under the CGAS scheme, there are 2 types of accounts that you can deposit your money in:
Savings deposit accounts (called Type-A accounts) and term deposit accounts (called Type-B
accounts). Type-B accounts have cumulative or non-cumulative interest options. You can transfer
money between the two by paying the fixed charges, but you can only withdraw money from
Type-A accounts if you submit a declaration that the money will be used to construct a house
within 60 days. Any un-utilised funds will have to be re-deposited.
Bonds:
If youve sold land and wish to save on tax, you can also invest in specified financial assets,
which will save your hard earned capital gains from taxation under Section 54EC of the Income
Tax Act, 1961. To do this, you must invest in notified bonds within 6 months of its transfer.
The bonds in specific are issued by the Rural Electrification Corporation and NHAI (the National
Highways Authority of India). If, within three years, you transfer or take a loan against these
bonds, you will be charged capital gains tax. Keep in mind that you can only invest Rs.50,00,000
in these bonds every financial year.
The sale of farm land is not taxed under capital gains, unless its within the limits of (or up to 8 km
away from) a municipality, municipal corporation, town committee, cantonment board or any other
civic body which has a population of (or over) 10,000.

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